CIO Playbook – Negotiation with Broadcom
Overview – The Post-Acquisition Reality: Broadcom’s late 2023 acquisition of VMware brought about sweeping changes that CIOs must confront head-on.
Broadcom immediately overhauled VMware’s licensing and pricing model. Perpetual VMware licenses are no longer sold or renewed; customers are forced to switch to subscription-only licensing for continued support and updates.
VMware’s product catalog was reduced from 160+ offerings to just four bundled suites (e.g., VMware Cloud Foundation, vSphere bundles), and licensing shifted to a per-CPU core model (with a minimum of 16 cores per CPU), which effectively increased costs on modern multicore servers. The result? Steep price increases.
Nearly 75% of IT leaders expect their VMware costs to more than double after the acquisition, and Gartner has seen some clients’ costs triple. At the same time, support quality has deteriorated – Broadcom’s leaner operation focuses on big spenders, leaving many customers complaining of slower, less helpful support.
Broadcom also gutted VMware’s partner network, terminating many reseller agreements and dealing directly with the largest accounts.
This means fewer third-party advocates and less discounting. Broadcom’s reputation is bluntly “unwilling to negotiate”, with one analyst describing their approach as holding a knife to customers and saying, “This is what you have to do or you’re out.”. In short, expect a tough, profit-driven stance from “VMware by Broadcom.”
Your task as a CIO is to push back firmly and protect your organization’s interests when renewing or signing new agreements.
Read Broadcom Enterprise Agreements: Strategic Sourcing Guide for IT Procurement.
Key VMware Licensing Changes Under Broadcom (What’s Changed)
- No More Perpetual Licenses: All VMware licensing is now subscription-based. If you have perpetual licenses with active support, once they expire, you will need to convert to a subscription for continued support and updates. Broadcom has ended renewals of support on perpetual contracts, pressuring customers into new subscription deals.
- Simplified (Bundled) Product Portfolio: VMware’s products were consolidated into four main bundles. Niche products, such as vSAN, NSX, and SRM, are no longer sold standalone—they are only available as part of larger suites or add-ons. This bundling can force you to buy features you don’t need, effectively “bloating” your purchase with unused components.
- New Pricing Structure (Per-Core Model): Licensing now counts CPU cores, with a minimum of 16 cores per CPU. This replaces the old per-CPU model and can significantly increase costs if your servers have high core counts. (For example, a 4-socket server with 32 cores each counts as 128 cores for licensing—a costly proposition under the new model.) Expect to pay more for the same infrastructure.
- Higher Costs & Rigid Terms: Broadcom’s playbook is to monetize aggressively. Support and licensing costs have spiked—some organizations saw maintenance quotes increase by 2x, 3x, or even more. Discounting is rare outside the largest deals. Broadcom is also enforcing stricter compliance (their sales team has shown willingness to trigger license audits under pressure). It is less flexible with contract terms that were negotiable under VMware’s previous regime.
- Support & Channel Changes: Broadcom prefers to work directly with large customers and has dropped many resellers. If you’re a mid-sized company, you might have lost your usual VAR or account manager and now have to deal with Broadcom reps who take a “take-it-or-leave-it” stance. Support is funneled through Broadcom’s systems, with reports of longer response times and less expertise. Smaller customers fear being deprioritized in favor of Broadcom’s top 2000 “strategic” accounts.
Read Top 20 Tips for Negotiating with Broadcom.
Negotiation Strategies and Tactics for CIOs
In this new landscape, CIOs and IT leaders must negotiate proactively and hard.
Here are specific tactics to use when renewing VMware contracts or signing new agreements with Broadcom:
- Engage Early & Control the Timeline: Don’t wait until your contract is about to lapse. Start renewal talks 4 to 6 months before expiration. Broadcom has been pressuring customers with last-minute ultimatums, such as giving them only a few weeks to sign a deal. Starting early removes the time pressure that Broadcom uses as leverage. Set the pace of negotiation so you can evaluate options and avoid being jammed into a corner at the last minute.
- Leverage Your Existing Investments: If you still have VMware perpetual licenses or an active Enterprise License Agreement (ELA), use them as bargaining power. Broadcom initially offered aggressive trade-in discounts (~50% off) to customers converting to subscriptions. Demand that value – insist on equivalent discounts or credits for the sunk cost of your existing licenses. For example, if you have 2 years left on support for perpetual licenses, negotiate a credit or price reduction in the new deal to account for that. Do not surrender valid licenses early without compensation. Make Broadcom earn your transition with a meaningful discount or incentive package.
- Insist on Price Protections (Caps and Locks): Given the expected cost hikes, negotiate strict price controls into your contract. Push for multi-year subscriptions with either fixed pricing or capped increases year-over-year. For instance, negotiate a clause that limits annual price increases to a single-digit percentage or, better, locks renewal rates for the term of a 3-year deal. If Broadcom offers a first-year discount, ensure that the rates for years 2 and 3 are agreed upon upfront (no “bait-and-switch” increases later). The goal is to prevent surprises – you need cost predictability in your IT budget.
- Demand Flexibility in Usage and Terms: Broadcom’s subscriptions shouldn’t trap you in an over-commitment. Negotiate the right to scale down your license count at renewal or to adjust product bundles if your needs change. For example, if you virtualize less on-premises due to cloud adoption, you should be able to reduce VMware subscription quantities without penalty at the next term. Fight for a contractual right to drop or swap licenses (e.g., trade some vSphere licenses for Cloud Foundation or vice versa as your strategy evolves). Additionally, seek an exit clause or at least a convenient termination option. For instance, include a term that allows you to terminate for convenience with 60-90 days’ notice after an initial period. This keeps pressure on Broadcom to continue earning your business. While they may resist, a softened provision, such as the ability to terminate specific components or a penalty-capped exit fee, is better than a pure lock-in.
- Secure Support Quality Commitments: Don’t accept subpar support as a given. If Broadcom requires you to pay for Premium Support tiers, tie that to real outcomes. Negotiate Service Level Agreements (SLAs) for support – e.g., guaranteed response and resolution times for critical issues, named technical account managers, or on-site support options for severe incidents. If they fail to meet an SLA, you can negotiate service credits or the right to escalate the issue to higher management. Broadcom’s support has a poor reputation after the acquisition, so push for provisions like quarterly service reviews and the ability to exit or receive refunds if support falls below an agreed-upon standard. Example: If you’re a global enterprise, require a clause that ensures critical issues receive a 1-hour response 24/7, with an established escalation path, and include that in the contract.
- Avoid Unneeded Bundles/Modules: With the new bundles, you might be quoted products you don’t intend to use (e.g., being forced into Cloud Foundation when you only need core vSphere). Push back on bundling – explicitly state which components you intend to deploy and negotiate not to be charged for extras. If Broadcom won’t unbundle, then negotiate license mobility or exchange rights. For example, if you’re paying for vSAN as part of a bundle but are not using it, you could ask to swap it for an equivalent value of another add-on later. At a minimum, ensure the contract gives transparency on the cost of each component. This way, you can quantify what you’re overpaying and use that in future negotiations or true-ups.
- Maintain Leverage – Imply You Have Options: Broadcom needs to know that you are not an idle captive. Even if moving off VMware entirely is difficult, you should signal that you have a Plan B. Without bluffing unrealistically, make it known that you are evaluating other solutions or cloud migrations for certain workloads. (Industry reports note that competitors are courting VMware customers with “take-out” offers.) Broadcom will be more inclined to negotiate if it fears losing your business in the long term. For example, mention that you’re testing a particular application in a public cloud or exploring an alternative hypervisor for a new project – just enough that Broadcom realizes they must earn your future spend. The key is to be credible: don’t claim you’ll rip everything out tomorrow (Broadcom knows most firms are heavily locked in), but express that new deployments are up for grabs if the Broadcom deal isn’t sustainable. This can soften their stance at the table.
- Escalate with Executive Muscle: If Broadcom’s sales reps aren’t budging, involve your leadership. As CIO, be willing to get on calls with Broadcom executives and engage your CFO or CEO if the spend is significant. Broadcom is focusing on its largest customers – use that to your advantage by demanding executive-level attention. Ask to meet with Broadcom’s VMware division leaders to hash out the terms. High-level engagement signals how critical this is to you, and it can sometimes yield concessions that sales reps wouldn’t grant. For example, a CIO-to-CIO conversation might secure a custom payment schedule or a commitment to support a legacy feature your business relies on. Broadcom cares about revenue and retention of top clients; showing them that your C-suite is scrutinizing the deal can prompt a more customer-friendly approach. Don’t be shy about pushing upward – Broadcom’s $61B investment in VMware means they can’t afford to lose major customers, so use your clout.
Using the above tactics in combination is key. Broadcom may still drive a hard bargain, but these measures will improve your position. At a minimum, you can buy time and avoid being steamrolled by unilateral terms.
Remember, inaction is risky – if you simply “wait and see,” Broadcom will assume you’ll accept whatever is offered, and they might even initiate a compliance audit if they sense hesitation. Instead, come prepared, lead the conversation, and express your requirements.
Key Contract Terms to Push Back On or Renegotiate
When reviewing contracts or renewal quotes from Broadcom/VMware, zero in on the following critical terms and negotiate them aggressively:
- Pricing & Increases: Nail down the cost details. Cap annual increases and secure multi-year rate locks. For example, write in that subscription fees cannot increase more than (say) 5% per year, or even better, pre-negotiate the exact renewal price for a 3-5 year term. Ensure that any one-time discounts are also reflected in future years’ pricing (avoid a first-year teaser discount with a massive jump later). This protects you from the notorious Broadcom price hikes.
- Bundling & Scope of Use: If your contract includes one of Broadcom’s bundles, clearly define what’s included and not. Negotiate out any components you don’t need or at least document their value. Example: If VMware Cloud Foundation includes vSAN and NSX but you have no plan to use them, ask for a rider to swap those for other products or a service credit. Avoid using vague language that limits how you deploy the software – ensure you retain rights equivalent to your previous licensing (for example, if you had global or disaster recovery (DR) use rights under VMware, ensure those carry over). The goal is to avoid paying for shelfware and maintain flexibility when using the software you’re buying.
- Treatment of Legacy Licenses: Clarify what happens with your existing VMware licenses. Secure credit for their residual value if you are transitioning from perpetual licenses. For instance, if you bought licenses outright, you should not have to pay full freight again for the subscription equivalent – push for a trade-up credit or discount, acknowledging your prior investment. Also, confirm you can continue running existing perpetual-license versions in perpetuity (with no support) if needed so you’re not forced into a rushed cutover. Explicitly state that you can use current software versions indefinitely under the old license terms to cover yourself legally, even as you adopt new subscriptions.
- Audit and Compliance Terms: Broadcom has shown it will use license audits as a tactic, so tighten the audit clause. Insist on provisions like reasonable notice (e.g.,30 days) for any audit, audits no more than once per year, and the requirement that any discovered shortfall can be resolved by purchasing additional licenses at pre-negotiated rates (no punitive “back maintenance” fees). Also, remove or modify any onerous “non-compliance” penalties. By pre-negotiating how true-ups are handled, you defang the audit threat. Ensure the contract notes that if Broadcom’s product changes (like portfolio shifts or feature deprecations), compliance will be measured in a way that doesn’t unfairly penalize you for those changes.
- Support Levels and SLAs: Get the support terms in writing. Define the level of support you’re paying for (E.g., Standard, Production, Premier) and the expected service levels. For a mission-critical environment, negotiate a support service level agreement (SLA) – e.g., 24/7 support with a 30-minute response time for Severity 1 issues, a dedicated technical account manager, etc. – and include it in the contract. If Broadcom fails to meet these, there should be consequences (credits, ability to escalate or exit). With post-Broadcom support being a sore point for many, having your guarantees contractually is vital.
- Termination & Flexibility Clauses: Push for any escape hatch or flexibility. Broadcom contracts will try to lock you in. Still, you can negotiate, for example, a termination for convenience after 1 or 2 years on a multi-year deal (perhaps with a notice period or a reduced refund). If outright termination rights are a no-go, then negotiate the right to reduce quantities or drop certain products at renewal without penalty. Another angle: If Broadcom sells off or discontinues a product you’re using (not unprecedented – they sold VMware’s Horizon desktop line to a third party), ensure you have the rights to continue using it or swap to an equivalent solution. The contract should protect you against Broadcom’s future business shifts.
Each of the above terms can have major financial and operational implications. Prioritize price protections and flexibility, as those directly impact your IT budget and agility.
Be extremely wary of any open or one-sided contract language that favors Broadcom – flag and negotiate it.
CIO’s Focus for Renewal Discussions
Finally, as a CIO or IT decision-maker sitting down at the negotiation table, keep your eye on the big picture priorities:
- Cost Predictability: Above all, make sure your VMware costs under Broadcom are predictable and sustainable. Up-front discounts mean little if year-two costs explode. Lock in what you will pay over the term and ensure any future spend (adding hosts, cores, etc.) follows a known price list or discount structure. This prevents budget shocks.
- Value for Money (ROI on Existing Investments): Don’t let Broadcom render your prior investments worthless. If you’ve spent millions on VMware over the years, you should not be treated like a new customer starting from scratch. Insist on terms recognizing your install base – credits for old licenses, grandfathered entitlements, or extended use of legacy software. The message is: “We’re willing to evolve with you, but not at the expense of everything we’ve already paid for.”
- Service Quality & Support Assurance: Given the upheaval, ensure that support and service don’t degrade after renewal. Lock in the support structure you need (and consider negotiating an evaluation period to test Broadcom’s support if you’re unsure). If Broadcom wants to charge a premium, they must deliver premium service – hold them to it contractually.
- Flexibility & Future-Proofing: The contract should allow your business to adapt. No one wants to be handcuffed by a vendor. Fight for the ability to adjust your licenses as your strategy changes – whether it’s scaling down, moving some workloads to the cloud, or adopting new VMware technologies. Also, demand transparency on VMware’s roadmap and some recourse if that roadmap doesn’t pan out. For example, if a promised feature or product is essential to you, you might have the right to a refund or additional discount if it’s not delivered. Broadcom’s narrower focus makes this important – you need to ensure that the solutions you’re paying for will meet your needs in the long term or that you’re not stuck if things change.
In summary, approach your VMware/Broadcom negotiation with a hardened, executive mindset. Broadcom will be very direct in pursuing its interests – you must be equally direct in protecting yours. Know your usage, know your alternatives, and memorize the contract details. Be prepared to push back on high prices and rigid terms with data and senior-level pressure. If something is important to your organization, write it in the agreement.
A practical, no-nonsense stance will serve you best: for example, if Broadcom’s proposal is untenable, say so bluntly and back it up with facts (cost analyses, impact statements) to justify your counterproposal. By focusing on the areas above – pricing, support, flexibility, and ensuring you’re not paying for fluff – CIOs can still negotiate fair deals in this new VMware era.
The tone from Broadcom may be tough, but with the right preparation and firm demands, you can sign a contract that safeguards your enterprise’s IT interests in the years ahead. Stay sharp, stay factual, and don’t hesitate to walk away from bad terms – that resolve is your strongest leverage in achieving a successful outcome.
